If Scotland votes to leave the U.K. as a result of Brexit, the result would be a “negative credit shock” for the U.K. economy and public finances, according to a new report from Fitch Ratings issued on Tuesday.
The Scottish governing party has confirmed plans to seek permission for the vote from the Scottish Parliament for a second referendum in late 2018 or early 2019. The first referendum, which produced a narrow “no” vote, was held in September 2014.
If Scotland did vote to separate, key issues would include trade between Scotland and the U.K.; the impact on the U.K.’s financial services sector; and Scotland’s currency arrangements.
The U.K.’s debt as a percentage of gross domestic product (GDP) would also increase, given that the removal of Scotland’s GDP would reduce the overall size of the U.K.’s economy. That would be at least partially offset by arrangements dealing with Scotland’s share of the U.K. debt.
The Fitch report concludes: “We recognize that a wide range of outcomes from Brexit is possible, and we will continue to assess the U.K. sovereign rating as developments unfold. The Negative Outlook on the U.K.’s ‘AA’ sovereign rating reflects the heightened uncertainty following the Brexit vote and the long-term challenge for the U.K. to reduce public debt.”